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Getting old is going to be very expensive, Pennsylvania, starting soon

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The state's rapidly aging population is going to make for potentially painful budgets down the road, the director of the state's Independent Fiscal Office told the House and Senate appropriations committees Monday.
(MARK PYNES, The Patriot-News/file)

The most jarring update from Knittel didn't deal with the Gov. Tom Corbett's proposed budget.

Instead, it was his assessment problems Pennsylvania could face within a few years because of its rapidly aging population.

The state's population under age 19 is projected to drop by 1.9 percent between now and 2020. It's working age population will stay the same. Meanwhile, it's senior population will spike by 21 percent -- in a state that's already the fourth oldest in the country.

That's going to affect everything.

Fewer working age employees means a slower growing economy and fewer people paying income tax. Seniors are more likely to spend on non-taxable items -- healthcare and medicine -- than to buy stuff that brings the state healthy returns on sales tax, like a new car or furniture, Knittel said.

The state will have to spend more on programs for seniors. Some of those programs are funded by the lottery. While the lottery has seen strong growth in recent years -- scratch off games are up 5.1 percent from last year, for example -- that growth can easily be overwhelmed by the demand placed on it. Expanding the lottery can only bring in so much money.

"At some point, we'll reach a point of saturation and the (lottery) growth rate will slow down," Knittel said. "When we reach that point, I'm not sure."

Knittel doesn't make policy recommendations. But the demographics will force lawmakers to act sooner or later, as costs -- particularly pension costs -- continue to rise and growth is limited.

"It can't continue on that path," Knittel said. "A policy choice must be made to raise revenue or cut spending."

Even after adding in small games of chance revenue, the state's revenue will likely only grow 3.3 percent in 2014-2015, Knittel said. That includes one-time revenue transfers, such as new "no surface impact" leases for natural gas on state forests.

State revenue growth requires more people to get hired, and more people currently working to receive raises, Knittel said. The last few years, economists and others have talked up such an increase in hiring to be right around the corner, but it never materializes. This time, Knittel said, the IFO is taking a slightly more pessimistic attitude.

This year doesn't look much better

When the IFO issued its midyear update, it estimated the state would receive $112 million less than it had previously projected.

Tax payments in January were particularly weak, and bodes badly for final payments that will be due in April. To get to that revised number, the state's economy will still have to grow through June.

Leakage

The state is trying to collect more in online sales tax.

It's had some success Knittel said, bringing in $45 million, but that number could be stronger. When asked, Knittel acknowledged there is "some leakage" from sites not collecting and residents not volunteering the cash.

The only way to tighten up collection rates would be stronger federal legislation, but that doesn't appear to be forthcoming.

Since you're taking requests

The IFO has a 9 person staff, including Knittel.

Over the course of the two hearings Monday, members of both committees repeatedly asked if the IFO had researched a particular topic or angle. A few of these requests appeared to arguments for or against a particular policy. But most were homework assignments.

Among the things legislators would like to see IFO reports on:

Comparing costs for Corbett's Healthy PA proposal to a Medicaid expansion, a long range projection on the cost of eliminating the property tax as proposed in HB 76, the economic impact for the state if Pennsylvanians have to pay higher natural gas costs if gas drilled here gets exported, and the possible savings to the state if more skilled nursing care were provided in private homes.

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